abacus in green hue

How to count to net-zero

Reading Time: 4 minutes

Counting to zero is easy. But budgeting for zero carbon, that’s more difficult.

Taking on the challenge, the Environment, Climate Change and Land Reform Committee are the first committee in the Scottish Parliament to kick-start their evidence-gathering on the 2020/21 budget. Last week they held a session on environmental tax and low-carbon infrastructure.

This week, climate deliberations continue with the Committee hearing from the UK Committee on Climate Change, whose advice has led to the Scottish Government adopting a “net-zero” greenhouse gas emissions target for 2045.

The annual cost of meeting this target is estimated to be around 1-2% of GDP (with the costs of not acting significantly higher). Clearly, if the net-zero target is to be met, climate issues will need to be a priority for Scottish budgets for years to come.

How can the Scottish Parliament learn from others?

In 2017, French President Emmanuel Macron started an initiative called the Paris Collaborative on Green Budgeting.

The Collaborative is run by the Organisation for Economic Co-operation and Development (OECD) and it aims to help countries “embed” climate and other environmental goals within national and subnational budgets. Here is the OECD’s Secretary General explaining the Collaborative in 55 seconds:

SPICe has been building links with the OECD over recent years, as we do with other international organisations – we need access to the best research and contacts in Scotland and beyond to do our job effectively. To that end, earlier this month I took the train to Paris to find out more, and to share what work is going on in the Scottish Parliament in this area.

We heard examples from France, Switzerland, Netherlands, Ireland and the European Commission of different ways to build environmental issues into financial decision-making. Across the day, one phrase stuck out in the discussions: “gilet jaunes”. This movement of protests in France – sparked by the rising cost of fuel and fuel taxes – was used by multiple people to demonstrate that, to be successful, the climate policies that governments and parliaments set though their budgets need to be coherent with a whole range of other priorities, such as poverty and inequality. The UN’s Sustainable Development Goals (SDGs), which are mapped onto the Scottish Government’s National Performance Framework, were given as a good example of priorities that embed climate, poverty, health, decent work and more.

The OECD hopes to build on countries’ existing practice and develop a green budgeting roadmap for others. This roadmap is still under development, but the slide below provides examples of possible green budgeting tools at different points in the budget cycle.

OECD_greenbudgetroadmap

At the event, Ireland and the European Commission gave examples of expenditure tagging. This is an approach that identifies all spending in a budget deemed to be climate-related.

  • Ireland identified over €1.6 billion of government funds in 2019 allocated to programmes which can help Ireland to achieve its climate goals, describing this approach as a “necessary first step” to green budgeting.
  • The European Commission propose that 25% of EU expenditure, across the next seven-year budget framework, contributes to climate objectives. To track this, the EC are refining the EU climate marker approach which assign a weighting to budget lines based on their contribution towards climate objectives.

France and the Netherlands gave examples of environmental budget statements and regular evaluations:

On fiscal sustainability, representatives from the Bank of England spoke about the macroeconomic risks of climate change and Switzerland spoke about how to deal with declining revenues from energy taxes.

What is happening in Scotland?

For ten years, the Scottish Government have published a carbon assessment of spending proposals in the Scottish Budget. This document gives an estimate of the greenhouse gases associated with the goods and services bought by the budget. What it doesn’t tell us is the outcome of this spending. The Scottish Government give the following illustration:

“For example, while the emissions associated with manufacturing and installing insulation are included, we do not count the carbon that may be saved in future as a result of making that improvement to the housing stock.”

This effect is likely to be significant for infrastructure projects that last a long time and can therefore “lock in” a pattern of emissions for many years. Our understanding of the impact of current infrastructure plans on future greenhouse gas emissions is poor; but the Cabinet Secretary for Finance, Economy and Fair Work, Derek Mackay has indicated he is open to improvements on the current high-level categorisation method.

A strong budget framework and multi-year budgeting were highlighted by the Collaborative as important foundations. Scotland’s new budget process is only one year old, but if it works as intended it should provide a strong foundation for better outcomes.

Last year, the Scottish Government started to publish annual reports tracking the implementation of the Climate Change Plan – this is the plan to deliver on Scotland’s existing climate targets. If designed and timed well, these reports have the potential to help inform the Scottish Budget process.

With the “gilet jaunes” example in mind, the Scottish Government’s Just Transition Commission is tasked with advising on “a carbon-neutral economy that is fair for all”. The Commission is expected to report near the beginning of 2021.

Counting to zero might seem easy, but that depends on where you start.

Iain Thom
SPICe Research

Photo image: Thomas Claveirole – Abacus